The largest tech and communication services equities are commanding significant attention due to AI ebullience. So it’s understandable that some market participants are hyperfocused on those names.
As a result, some investors are overlooking other opportunities in the expansive world of tech stocks. Stock picking to that effect? Forget it. Why bother, when mega-cap growth is leading the way. All understandable feelings, but for investors who want to capitalize on some unheralded tech opportunities while eschewing stock picking, the Invesco NASDAQ Next Gen 100 ETF (QQQJ) is a fund to consider.
Home to nearly $660 million in assets under management, QQQJ turns four years old in October. It tracks the Nasdaq Next Generation 100 Index. That means its components are the stocks next in line for promotion to the Nasdaq-100 Index (NDX). But the ETF offers additional perks.
QQQJ Has Some Impressive Holdings
Some of the biggest, most well-known tech names reside in NDX, but that’s not a slight against QQQJ. In fact, several of the names on Morningstar’s recently published “best tech stocks to buy” list are QQQJ member firms. That group includes Zoom Video Communications (ZM), which has a larger product portfolio than many investors are aware of.
“The company’s focus is squarely on adding as many users as possible. This starts with generating buzz and familiarity with free users while the direct salesforce sells to enterprise accounts. Last, customer count, deal size, and forward-looking metrics related to demand continue to expand,” noted Morningstar analyst Dan Romanoff.
NICE (NICE), a cloud software provider that’s also a QQQJ holding, could be a catalyst for the ETF over the long term, as more companies and organizations are compelled to spend more capital on compliance software.
“For its 2022-26 strategic cycle, Nice is targeting double-digit total revenue growth, more than 80% of total revenue from cloud products, and a non-GAAP operating margin above 30%,” added Morningstar analyst Rob Hales.
Paylocity Holding Corp. (PCTY) is one of QQQJ’s industrial holdings, but it’s a software application firm and one that Morningstar views as deeply discounted. The company is a provider of human resources and payroll software for small and midsize enterprises. That’s a fragmented market, indicating that a larger player such as Paylocity can achieve scale through smart deal-making.
“We expect Paylocity will continue to invest in software development and tuck in acquisitions to expand its portfolio of modules to meet changing client need. We forecast average revenue per client to increase at an annual average rate of 4% reflecting increased module uptake and minimal like-for-like price increases,” said Morningstar’s Emma Williams.
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